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Offset supply will be the main long-term allowance price driver after California and Quebec link their emissions trading programs next year to form the Western Climate Initiative single carbon market, according to market intelligence service Thomson Reuters Point Carbon.

Both the California and Quebec electricity sectors have relatively low emissions. This means that nearly half of the WCI’s covered emissions will have to come from transportation, Point Carbon says.

This in turn means that there will be few low-cost opportunities to meet cap-and-trade compliance through abatement, and the demand for offset credits to cut compliance costs will be strong, Point Carbon says.

While offsets can be used to cover eight percent of emissions under the program, only four offset protocols have been approved so far. Point Carbon estimates these can only meet only one-third of the offset quota through 2020, or 79 Mt. It forecasts a price range for 2013 allowances of between $12/ton and $27/ton, depending on how many offsets are used.

In November last year, six U.S. states pulled out of the WCI’s carbon trading program. New Mexico, Arizona, Washington, Oregon, Montana and Utah formally declared their withdrawal from the WCI and their intention to join the North America 2050 Initiative, a bloc that aims to reduce emissions through various climate change and clean energy strategies.